Ben Graham Lost Everything Using Margin Leverage

In their latest episode of the VALUE: After Hours Podcast, Brewster, Taylor, and Carlisle discuss Ben Graham Lost Everything Using Margin Leverage. Here’s an excerpt from the episode:

Bill: Yeah. 1930 thinking the worst was over. Graham went all in. He used margin leverage what thought would be terrific returns. But the worst was not over. The Dow collapsed. Graham had his worst year losing 50%. He personally was wiped out in the crash. And that’s from fa[unintelligible [00:16:25]. Big mistakes.

Tobias: I’m glad you said that because the thought had occurred to me that I might want to get long a little bit on margin through this. So, that’s–

Jake: [laughs]

Tobias: Thanks for the reminder.

Bill: Yeah. So, you got to make it to the other side. I am certain that there are things to buy right now. I am also certain that you can get squeezed out of them if you do it in a stupid way.

Jake: Margin. I’ve been wondering if you’ve seen some of the moves in the bond market lately? How if they’re not been more like leveraged bond funds, risk parity, blowing up with those kinds of moves? They’re just monster moves. I don’t know if we’ve ever seen those that fast in our lives.

Tobias: I felt the same thing.

Jake: What’s happening there?

Tobias: I don’t know the answer.

Jake: Do we have to wait for Pal’s book to come out, where he talks about how he saved– [crosstalk] Yeah.

Tobias: I thought the other day, these moves are amazing and there’s a counterparty to every single one of these moves.

Jake: Yeah.

Tobias: There is somebody on the losing side of every single one of these moves. And there’s been nothing. And all of those things, the moves in those are just astronomical.

Jake: And we know that these guys are unleveraged doing that, because the returns, there’s nothing there. The interest rates where they were in the toilet, you had to lever up to get any real kind of return.

Tobias: The moves are usually so small. Yeah, that’s it. You got to lever up to see get a reasonable return. Yeah, I’m amazed there hasn’t been more people blowing up yet. I guess– I don’t know. I don’t get it.

Jake: Well, orderly liquidation.

Tobias: Evidently.

Bill: When do funds send out their communications to shareholders?

Tobias: Coming upon on end of quarter here.

Jake: Couple days. [laughs]

Tobias: Yeah.

Bill: Yeah. So, we’ll see other redemptions like next month.

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